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As filed with the Securities and Exchange Commission on November 12, 1999
REGISTRATION NO. 333-74277
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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KEYSTONE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 84-1246585*
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 FOUR FALLS CORPORATE CENTER
SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
(484) 530-1800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------------
JEFFREY E. KELTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER
SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
(484) 530-1800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
COPIES TO:
BONNIE A. BARSAMIAN
ROBERT E. KING, JR.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
*I.R.S. Employer Identification Number of American Real Estate Investment
Corporation, the predecessor of the Registrant prior to the merger described
herein.
Approximate date of commencement of proposed sale to the public: From time
to time or at one time after the effective date of the Registration Statement as
determined by market conditions.
-----------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /;
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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EXPLANATORY NOTE
Effective October 13, 1999, our predecessor American Real Estate Investment
Trust Corporation, a Maryland corporation, merged with and into us in order to
convert its corporate form from a Maryland corporation to a Maryland real estate
investment trust. We were the surviving entity of the merger. We succeeded to
all of the rights, powers, property and assets of our predecessor and assumed
all of its liabilities, debts and obligations.
Pursuant to Rule 414(d) under the Securities Act of 1933, as amended (the
"Act"), we hereby adopt our predecessor's Registration Statement on Form S-3
(File No. 333-74277) as our own Registration Statement for all purposes of the
Act and the Securities Exchange Act of 1934, as amended. All references made in
our predecessor's Registration Statement to our predecessor and its properties
and assets shall be deemed to be references to us and our properties and assets.
All references made in our predecessor's Registration Statement to American Real
Estate Investment, L.P. shall be deemed to be references to Keystone Operating
Partnership, L.P. All references in our predecessor's Registration Statement to
our predecessor's Charter shall be deemed to be references to our Declaration of
Trust. All references made in our predecessor's Registration Statement to
Directors shall be deemed to be references to Trustees. All references made in
our predecessor's Registration Statement to shares of its Common Stock shall be
deemed to be references to our Common Shares, par value $.001 per share. All
references made in our predecessor's Registration Statement to shares of its
Preferred Stock shall be deemed to be references to our Preferred Shares, par
value $.001 per share.
We hereby expressly affirm our succession by operation of law pursuant to
this merger of all of our predecessor's rights, powers and obligations under our
predecessor's Registration Statement.
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SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
PROSPECTUS
1,672,000 SHARES
KEYSTONE PROPERTY TRUST
Common Shares
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This Prospectus relates to the offer and sale by the entities and
persons described in the section "Selling Security Holders" in this Prospectus
of our Common Shares. The selling security holders may offer and sell our Common
Shares from time to time on the American Stock Exchange where our Common Shares
are listed for trading under the symbol "KTR," in other markets where our Common
Shares may be traded or in negotiated transactions. The selling security holders
may offer our Common Shares at whatever prices are current when particular sales
take place or at other prices to which they agree. On November 11, 1999, the
closing price of our Common Shares reported on the American Stock Exchange was
$15.375. The selling security holders will pay any brokerage fees or
commissions relating to sales by them. See the section "Method of Sale" in this
Prospectus. The selling security holders received the Common Shares to which
this Prospectus relates from us in privately negotiated sales pursuant to an
exemption from registration under the Securities Act of 1933, as amended. We are
registering the offer and sale by the selling security holders of Common Shares
in order to permit secondary trading of such Common Shares that are held by the
selling security holders. The selling security holders may offer their shares
for resale from time to time. The registration of their shares does not
necessarily mean that the selling security holders s will sell their shares.
We will not receive any of the proceeds of sales by the selling
security holders. We are paying the costs of preparing and filing the
Registration Statement of which this Prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR
COMMON SHARES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these Securities and they have not
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS , 1999.
The information contained in this Prospectus is not complete and may be changed.
We have filed a registration statement relating to these securities with the
Securities and Exchange Commission. The selling security holders may not sell
these securities prior to the time the Registration Statement becomes effective.
This Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any State where such offer or
sale is not permitted.
You should rely only on the information contained in or incorporated by
reference into this Prospectus. Neither Keystone Property Trust nor the selling
security holders have authorized any other person to provide you with different
information.
The selling security holders are not making an offer of Common Shares
in any location where the offer is not permitted.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION...........................................4
INCORPORATION OF DOCUMENTS BY REFERENCE.......................................4
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION..................5
RISK FACTORS..................................................................6
THE COMPANY..................................................................11
USE OF PROCEEDS..............................................................12
SELLING SECURITY HOLDERS.....................................................12
METHOD OF SALE...............................................................13
FEDERAL INCOME TAX CONSIDERATIONS............................................14
LEGAL MATTERS................................................................22
EXPERTS......................................................................22
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, as a result, file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy those reports, proxy
statements and other information which we file with the Commission at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of that information from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants, including Keystone Property Trust, that file
electronically with the Commission. You may access the Commission's web site at
http://www.sec.gov. Our Common Shares are listed on the American Stock Exchange
(the "AMEX"). You may also read our reports, proxy statements and other
information which we file at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
We have filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus is a part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement, because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the Commission. For further information, we refer you
to the Registration Statement, which you may read and copy at, or obtain from,
the Commission or the AMEX in the manner described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
We incorporate by reference into this Prospectus the following
documents which we previously filed with the Commission under the File Number
1-12514:
(a) our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(b) our Quarterly Reports on Form 10-Q for the calendar
quarters ended March 31, 1999 and June 30, 1999;
(c) our Current Report on Form 8-K filed January 8, 1999, our
Current Report on Form 8-K/A filed January 13, 1999, our Current Report
on Form 8-K filed August 20, 1999, our Current Report on Form 8-K filed
on October 12, 1999, our Current Report on Form 8-K filed on October
13, 1999, our Current Report on Form 8-K filed on October 18, 1999,
our Current Report on Form 8-K filed on October 20, 1999, and our
Current Report on Form 8-K filed on November 4, 1999;
(d) the description of our capital shares and the description
of the limited partnership interests of Keystone Property, L.P., our
operating partnership, contained in our Registration Statement on Form
8-A/A filed on October 14, 1999 (including any amendments or reports
filed for the purpose of updating such description); and
(e) all other reports we have filed pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act since December 31, 1998.
When we file documents in accordance with Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act between the date of this Post Effective Amendment No.1
and the time we file any future post-effective amendments to the Registration
Statement of which this Prospectus is a part saying all the securities which are
the subject of that Registration Statement have been sold or deregistering any
securities which have not been sold, the documents we file will be incorporated
into this Prospectus and will be a part of it beginning on the date the
documents are filed. If any document which we file changes anything said in this
Prospectus or in an earlier document which is
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incorporated into this Prospectus, the later document will modify or supersede
what is said in this Prospectus or the earlier document.
We will provide, without charge, at the written or oral request of
anyone, including any beneficial owner, to whom this Prospectus is delivered,
copies of the documents incorporated by reference in this Prospectus, other than
exhibits to those documents which are not specifically incorporated by
reference. Requests should be directed to: Keystone Property Trust, 200 Four
Falls Corporate Center, Suite 208, West Conshohocken, PA 19428, Attention:
Investor Relations (Telephone: (484) 530-1800).
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts (each, a "REIT")), availability of capital,
interest rates, competition, supply and demand for properties in our current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained or incorporated by reference
herein.
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RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON SHARES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE OUR
COMMON SHARES. THIS SECTION INCLUDES OR REFERS TO CERTAIN FORWARD- LOOKING
STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE QUALIFICATIONS AND
LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED ON PAGE 2 OF THIS
PROSPECTUS.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF NEW PROPERTIES, WHICH MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON SHARES AND OUR ABILITY TO PAY DIVIDENDS
TO OUR SHAREHOLDERS.
We have recently experienced, and may continue to experience, rapid growth
through the acquisition of additional office and industrial properties. Our
ability to manage our growth effectively requires us to integrate successfully
our new acquisitions into our existing management structure. Properties which we
acquire typically have no operating history under our management and such
properties may have characteristics or deficiencies unknown to us which affect
their valuation or revenue potential. The operating performance of these
properties may decline under our management. A decline in the operating
performance of these properties will adversely affect our operating results and
funds from operations, which could adversely impact the price of our Common
Shares and the amount of dividends we will be able to pay.
We currently plan to continue acquiring properties to the extent we
consider appropriate. Our success in this area depends on many factors,
including the ability to successfully (i) identify properties which meet our
acquisition criteria, (ii) negotiate acceptable price and terms with the seller
and (iii) close the transactions for such properties. Also, we plan to finance
our future acquisitions through debt offerings, equity offerings, other debt
financing or any combination thereof. By using existing credit facilities or
other short-term debt for such activities, we may not be able to secure
financing in the future or financing on equally favorable terms. By using other
debt to finance such activities, we will be subject to risks normally associated
with debt financing. See the risk factor captioned "Our Financial Performance
and Value are Subject to Risks Associated with the Real Estate Industry That
Could Adversely Affect Our Financial Condition, Debt financing may have an
adverse effect on our cash flow and our ability to pay dividends" below. By
using equity to finance such activities, we may dilute your current interest in
our company. Accordingly, our acquisition activities may have an adverse effect
on our financial performance and ability to pay dividends to our shareholders.
THERE ARE RISKS ASSOCIATED WITH OUR ENTRY INTO NEW MARKETS
We currently intend to continue to seek expansion of our operations into
additional new markets other than Northern New Jersey, Central Pennsylvania,
Upstate New York, Indianapolis, Indiana, Ohio and Greenville, South Carolina. In
determining whether to enter a new market, we consider, among other factors,
demographics, job growth, employment, real estate fundamentals, competition and
other related matters. We cannot assure you that we will be successful in our
efforts to identify new markets, or that once we identify new markets, that we
will be able to successfully acquire properties in those markets and achieve
favorable operating results from properties acquired in those markets.
WE DEPEND ON THE PERFORMANCE OF OUR PRIMARY MARKETS, AND CHANGES IN SUCH MARKETS
MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Most of our properties are currently located in Northern New Jersey,
Central Pennsylvania, Indianapolis, Indiana, Upstate New York and Greenville,
South Carolina. Like other real estate markets, these commercial real estate
markets have experienced economic downturns in the past, and future declines in
any of these economies or real estate markets could adversely affect our
operations or cash available for dividends. Our financial performance and our
ability to pay dividends to our shareholders will be particularly sensitive to
the economic conditions in those markets. Our revenues and the value of our
properties may be adversely affected by a number of factors, including the local
economic climate (which may be adversely impacted by business layoffs, industry
slowdowns, changing demographics and other factors) and local real estate
conditions (such as oversupply of or reduced demand for office and industrial
properties). These factors, when and if they occur in the area in which our
properties are located, would adversely affect our ability to pay dividends to
our shareholders.
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OUR SHAREHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST.
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST. For us
to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital shares may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our Declaration of Trust (the "Declaration of Trust")
includes certain restrictions regarding transfers of our capital shares and
ownership limits that are intended to assist us in satisfying such limitations.
Such restrictions and limits may not be adequate in all cases, however, to
prevent the transfer of our capital shares in violation of the ownership
limitations. The ownership limit discussed above may have the effect of
delaying, deferring or preventing someone from taking control of our company,
even though such a change of control could involve a premium price for your
Common Shares or otherwise be in our shareholders' best interest.
OUR STAGGERED BOARD MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST. Our
Board of Trustees is divided into three classes, with the members of each class
serving a three-year term. The staggered terms for trustees may reduce the
possibility of a tender offer or an attempt to effect a change in control of our
company, even if such a tender offer or change of control would be in our
shareholders' best interest.
ISSUANCES OF PREFERRED SHARES AND PREEMPTIVE RIGHTS MAY PREVENT A CHANGE OF
CONTROL THAT WOULD BE IN OUR SHAREHOLDERS' BEST INTEREST. Our Board of Trustees
is authorized by our Declaration of Trust to establish and issue one or more
series of preferred shares without shareholder approval. We currently have three
series of preferred shares outstanding. The establishment of these series or a
future series of preferred shares could make more difficult a change of control
of our company that would be in your best interest. The holders of our Series A
Convertible Preferred Stock have preemptive rights with respect to future
issuances of our Common Shares. Additionally, we have contractually granted
similar rights to certain holders of our Common Shares. These rights could make
more difficult a change of control of our company that would be in your best
interest.
THE CONCENTRATION OF OWNERSHIP OF OUR CAPITAL SHARES MAY NOT BE IN OUR
SHAREHOLDERS' BEST INTEREST.
Our officers and trustees as a group currently beneficially own 22.04% of
our company (assuming the conversion to Common Shares of all outstanding shares
of our Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, common and convertible preferred
units of limited partnership interest in our operating partnership and the
conversion of outstanding warrants to purchase units of limited partnership
interest in our operating partnership and our Common Shares). In addition,
certain other investors currently own a significant amount of our Common Shares.
Although we feel this ownership is beneficial in aligning the interest of
officers and trustees with that of the other shareholders, this may enable the
officers and trustees to exercise substantial influence over the management of
our company and on the outcome of any matters submitted to a vote of our
shareholders. The concentration of beneficial ownership of our company may have
the effect of delaying, deferring or preventing a change in control of our
company, may discourage bids for our capital shares at a premium over the market
price of our capital shares and may adversely affect the market price of our
capital shares.
CERTAIN TRUSTEES AND OFFICERS WHO OWN UNITS OF LIMITED PARTNERSHIP INTEREST
IN OUR OPERATING PARTNERSHIP MAY BE AFFECTED DIFFERENTLY THAN OUR SHAREHOLDERS
AS A RESULT OF THE SALE OF, OR REDUCTION OF MORTGAGE DEBT ON, CERTAIN OF THE
PROPERTIES.
Certain of our trustees and officers own units of limited partnership
interest in our operating partnership and, as a result, may face different and
more adverse tax consequences than you will if we sell or reduce our mortgage
indebtedness on certain of our properties. Those individuals may, therefore,
have different objectives than you regarding the appropriate pricing and timing
of any sale of such properties or reduction of mortgage debt. Accordingly, there
may be instances in which we may not sell a property or pay down the debt on a
property even though doing so would be advantageous to you.
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RISKS ASSOCIATED WITH FUTURE ISSUANCES OF OUR COMMON SHARES
FUTURE ISSUANCES OF COMMON SHARES OR SECURITIES CONVERTIBLE INTO COMMON
SHARES MAY DILUTE YOUR INTEREST IN OUR COMPANY. Our Declaration of Trust
authorizes our Board of Trustees to issue additional Common Shares or securities
convertible into our Common Shares without shareholder approval. Additionally,
each of our three classes of preferred shares and all limited partnership
interests in our Operating Partnership may be converted into our Common Shares
pursuant to their terms. Such issuances of our Common Shares or conversion of
convertible securities into our Common Shares would have the effect of diluting
your existing interest in our company.
FUTURE SALES OF OUR COMMON SHARES MAY ADVERSELY AFFECT THE PRICE OF OUR
COMMON SHARES. Future sales of a substantial number of our Common Shares may
occur as a result of option holders exercising their rights to purchase our
shares or by resale availability from registration rights (including with
respect to our preferred shares and preferred and common units of limited
partnership interest in our operating partnership, Keystone Property, L.P. (the
"Operating Partnership") converted into our Common Shares) or exemptions from
registration. The selling security holders s are not the only shareholders that
have registration rights with respect to our Common Shares and we are not
prevented from granting registration rights to shareholders in the future.
Future sales of a substantial number of our Common Shares could adversely affect
the prevailing market price for our Common Shares.
WE HAVE AGREED NOT TO SELL CERTAIN OF OUR PROPERTIES
We have agreed with the sellers of certain of our properties not to sell
certain properties for a period of time ranging from one to ten years in any
transaction that would trigger taxable income, subject to certain exceptions.
Some of these agreements are with current officers and trustees of our company.
In addition, we may enter into similar agreements with future sellers of
properties. These agreements generally provide that we may dispose of these
properties in transactions that qualify as tax-free exchanges under Section 1031
of the Internal Revenue Code of 1986, as amended (the "Code"). Therefore, we may
be precluded from selling certain properties other than in transactions that
would qualify as tax-free exchanges for federal income tax purposes, even if it
would be in your best interest to do so.
OUR FINANCIAL PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend upon the
amount of income generated and expenses incurred. If properties do not generate
income sufficient to meet operating expenses, including debt service and capital
expenditures, the owner's income and ability to pay dividends will be adversely
affected. An owner's income from properties may be adversely affected by a
variety of factors, including the general economic climate, local conditions,
such as oversupply of the particular category of real estate owned or controlled
by the owner, or reduction in demand for any such properties, competition from
properties owned by others, or the ability of the owner to provide adequate
facilities maintenance, services and amenities. With respect to office and
industrial properties, maintaining income at desired levels can be effected by a
number of factors, including the ability to locate desirable replacements for
key tenants at attractive rent levels following expiration of leases, and the
costs of reletting and providing tenant improvements required to attract and
maintain attractive tenants at desirable rentals.
Often, increased operating costs, including real estate taxes, insurance
and maintenance costs, do not decline when circumstances cause a reduction in
income from a property. If a property is mortgaged to secure payment of
indebtedness, and the owner is unable to meet its mortgage payments, a loss
could be sustained as a result of foreclosure on the property. In addition,
income from properties and real estate values are also affected by such factors
as applicable laws, including tax laws, interest rate levels and the
availability of financing.
WE DEPEND ON OUR MAJOR TENANTS. Substantially all of our income is, and
will continue to be, derived from rental income on our properties and,
consequently, our distributable cash flow and ability to pay expected dividends
to shareholders would be adversely affected if a significant number of our
tenants failed to meet their lease obligations. At September 30, 1999, our ten
largest tenants represented approximately 24.5% of our industrial and office
properties' annualized rental income. At any time, a tenant at any of our
properties may seek the protection of the bankruptcy laws, which could result in
delays in rental payments or in the rejection and termination of such tenant's
lease and thereby cause a reduction in our cash flow and the amounts available
for dividends to our
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shareholders. We cannot assure you that tenants will not file for bankruptcy
protection in the future or, if any tenants file, that they will affirm their
leases and continue to make rental payments in a timely manner. In addition, a
tenant from time to time may experience a downturn in its business which may
weaken its financial condition and result in the failure to make rental payments
when due. If tenant leases are not affirmed following bankruptcy or if a
tenant's financial condition weakens, our cash flow and the amounts available
for dividends to you may be adversely effected.
WE COMPETE WITH OTHER OWNERS AND OPERATORS OF PROPERTIES. All of our
properties are located in well-developed market areas. There are numerous other
office and industrial properties and real estate companies (including other
REITs) within the market area of each of our properties which will compete with
us for tenants and for development and acquisition opportunities. The number of
competitive properties and real estate companies in such areas could have a
material effect on our operations, our ability to rent our properties and the
rents which we charge, and our development and acquisition opportunities. We
compete for tenants and acquisitions with others who may have greater resources
than us. We will continue to experience strong competition in pursuing
development and acquisition opportunities.
DEBT FINANCING MAY HAVE AN ADVERSE EFFECT ON OUR CASH FLOW AND OUR ABILITY
TO PAY DIVIDENDS. Our Declaration of Trust, By-laws or investment policies do
not contain any limitation on the amount of aggregate indebtedness which we may
incur and no shareholder approval is required for us to incur additional
indebtedness. Accordingly, our management or Board of Trustees will have
discretion to incur such amounts of aggregate indebtedness as they determine. We
may seek additional debt financing to fund future acquisitions. We are subject
to risks normally associated with debt financing, including the risk that our
cash flow will be insufficient to pay dividends at expected levels and meet
required payments of principal and interest, the risk that indebtedness on our
properties (which will not have been fully amortized at maturity in all cases)
will not be able to be refinanced or that the terms of such refinancing will not
be as favorable as the terms of existing indebtedness. Our properties are or may
be mortgaged to secure payments on our indebtedness. Certain properties are
secured by debt which is cross-collateralized and cross- defaulted. As of
October 1, 1999, our mortgage debt totaled approximately $487.7 million (or
95.9% of our total indebtedness), $140.2 million or approximately 28.8% of which
constituted borrowings under our $150 million secured credit facility (the
"Credit Facility"). Based on the market price for our Common Shares at the close
of business on October 11, 1999, our indebtedness was equal to approximately
57.1% of our total market capitalization on that date (assuming the conversion
to Common Shares of all of our outstanding preferred shares, preferred or common
units of limited partnership interest in the Operating Partnership, other than
those shares or units which we own).
In the future, we may increase our borrowings under the Credit Facility for
new acquisitions, capital improvements, new development projects and for general
working capital purposes. Such variable rate debt creates higher debt service
requirements if market interest rates increase, which could adversely affect our
cash flow and the amounts of cash available for dividends to you.
If we fail to make required payments of principal and interest on any
mortgage debt, our lenders could foreclose on the properties securing such debt
which would result in a loss of income and asset value to us. If principal
payments due at maturity cannot be paid or refinanced, we expect that our cash
flow would not be sufficient in all years to pay dividends at expected levels
and to repay all maturing debt. Furthermore, any substantial increase in
interest expense relating to any such refinanced indebtedness also would
adversely affect our cash flow and the amounts available for dividends to you.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION, REDEVELOPMENT, DEVELOPMENT
AND CONSTRUCTION ACTIVITIES. We intend to acquire office and industrial
properties to the extent that they can be acquired on terms that meet our
investment criteria. Acquisitions of office and industrial properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
We intend to consider future investments in the redevelopment, development
and construction of office and industrial buildings in accordance with our
growth policies. Risks associated with our redevelopment, development and
construction activities may include: abandonment of redevelopment or development
opportunities; construction costs of a property exceeding original estimates,
possibly making the property unprofitable; occupancy rates and
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rents at a newly renovated or completed property may not be sufficient to make
the property profitable; financing may not be available on favorable terms for
redevelopment or development of a property; and permanent financing may not be
available on favorable terms to replace a short-term construction loan and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. In addition, new
redevelopment or development activities, regardless of whether they are
ultimately successful, typically require a substantial portion of management's
time and attention. Redevelopment or development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations.
WE MAY NOT BE ABLE TO RENEW LEASES OR TO RELET SPACE. We are, and will
continue to be, subject to the risk that upon expiration of leases for space
located in our properties, such leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. If we are unable to
relet promptly or renew the leases for all or a substantial portion of any
vacant space, if the rental rates upon such renewal or reletting were
significantly lower than expected or if our cash available proves inadequate,
then our cash flow and ability to pay expected dividends to you may be adversely
affected.
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Under various federal, state, and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow using such real
property as collateral and to lease the property. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of, and exposure to, hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of our properties, we may be
potentially liable for any such costs. Phase I environmental site assessments
("ESAs") have been obtained on all of our properties. The purpose of Phase I
ESAs is to identify potential sources of contamination for which we may be
responsible and to assess the status of environmental regulatory compliance. For
a number of the properties, the Phase I ESAs referenced prior Phase II ESAs
obtained on such properties. Phase II ESAs generally involve more invasive
procedures than Phase I ESAs, such as soil sampling and testing or the
installation and monitoring of groundwater wells. The ESAs have not revealed any
environmental condition, liability or compliance concern that we believe would
have a material adverse effect on our business, assets or results of operations,
nor are we aware of any such condition, liability or concern. It is possible
that the ESAs relating to any of the properties do not reveal all environmental
conditions, liabilities or compliance concerns or that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related ESA report was completed of which we are otherwise
unaware. In addition, we cannot assure you that properties which we acquire in
the future will not have any material environmental conditions.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE OUR COMPANY TO BE TAXED AS A
CORPORATION
WE WILL BE TAXED AS A CORPORATION IF WE FAIL TO QUALIFY AS A REIT. We
believe that, commencing with our taxable year ended December 31, 1993, we have
been organized and operated in a manner that has enabled us to meet the
requirements for qualification as a REIT for federal income tax purposes and we
intend to continue to operate in such a manner. We have not requested, and we do
not plan to request, a ruling from the Internal Revenue Service ("IRS") that we
qualify as a REIT. However, we have received an opinion from the law firm of
Rogers & Wells LLP that, based on certain assumptions and representations, we
have been organized in a manner so as to qualify as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our
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meeting various requirements imposed by the Code. Such requirements are
discussed in more detail in the section "Federal Income Tax Considerations -
Taxation of the Company" in this Prospectus.
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid to shareholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lost our REIT status, the funds available for dividends to you
would be substantially reduced for each of the years involved. In addition, we
would no longer be required to pay dividends to you.
FAILURE TO MEET MINIMUM DISTRIBUTION REQUIREMENTS MAY ADVERSELY AFFECT US.
To qualify as a REIT, we generally must distribute to our shareholders 95% of
our net taxable income. Such annual distribution requirements limit the amount
of cash we have available for other business purposes, including amounts to fund
our growth and make payments on our debt. If we fail to meet these distribution
requirements, we may be disqualified as a REIT and subject to certain income and
excise taxes. In addition, we will be subject to a 4% nondeductible excise tax
on the amount, if any, by which certain distributions we make with respect to
any calendar year are less than the sum of (i) 85% of our REIT ordinary income
for that year, (ii) 95% of our REIT capital gain net income for that year and
(iii) any undistributed taxable income from prior years. We intend to make
distributions to our shareholders to comply with the 95% distribution
requirement and to avoid the nondeductible excise tax. Differences in timing
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at our taxable income could require us, directly or indirectly through
the Operating Partnership, to borrow funds on a short-term or long-term basis to
meet the 95% distribution requirement and to avoid the nondeductible excise tax.
See the section "Federal Income Tax Considerations Taxation of the Company -
Annual Distribution Requirements" in this Prospectus.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS MAY ADVERSELY US. During 1999,
the Clinton Administration released a summary of its proposed budget plan and
various legislation was introduced in Congress which contained several proposals
affecting REITs. One such proposal, if enacted in its present form, would
prohibit a REIT from holding securities representing more than 10% of the value
of all classes of stock of a corporation, other than a qualified REIT subsidiary
or another REIT. If enacted in its present form, the proposal may limit the
future activities and growth of Keystone Realty Services, Inc. (the "Management
Company"). No prediction can be made as to whether such proposal or any other
proposal affecting REITs will be enacted into legislation and the impact of any
such legislation on our operations. See the section "Federal Income Tax
Considerations - Other Tax Considerations" in this Prospectus.
WE MAY BE SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property that could reduce operating cash flow. See the section "Federal Income
Tax Considerations - Other Tax Considerations" in this Prospectus.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM MIGHT ADVERSELY AFFECT OUR
PERFORMANCE
We depend on the efforts of our key personnel, particularly Jeffrey E.
Kelter, our President and Chief Executive Officer, as well as certain other
senior management. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations.
THE COMPANY
We used to be a Maryland corporation named American Real Estate Investment
Corporation. Effective October 13, 1999, we converted our corporate form from a
Maryland corporation to a Maryland real estate investment trust and changed our
name to "Keystone Property Trust." This was effected through a merger of
American Real Estate Investment Corporation with and into Keystone Property
Trust, a wholly-owned real estate investment trust formed solely for the
purposes of the conversion. We are the surviving entity of the merger and have
succeeded to all of the rights, powers and property of our predecessor and
assumed all of the liabilities, debts and obligations of our predecessor.
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. As of October
11, 1999, we owned a portfolio of 130 properties comprised of 95
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industrial properties and 34 office properties containing an aggregate of
approximately 17.2 million square feet and an investment in a direct financing
lease (the "Properties"). The Properties are located principally in the
mid-Atlantic and Northeastern United States and are approximately 98.9% leased
to 322 tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
at September 30, 1999, owned approximately 53.9% of the outstanding units of
limited partnership interest in the Operating Partnership. The remaining units
of limited partnership interest are owned by limited partners of the Operating
Partnership. Our officers and trustees owned approximately 24.2% of the
outstanding units of limited partnership interest in the Operating Partnership
as of September 30, 1999. Each common unit of limited partnership interest of
the Operating Partnership (an "OP Unit") may be converted by the holder into one
common share (subject to certain anti-dilution provisions), or, at our option,
the cash value of one Common Share. Each Series B Convertible Preferred Unit of
limited partnership interest in the Operating Partnership may be converted by
the holder into the number of our Common Shares obtained by dividing the
liquidation preference (which is $25.00 per unit) by the conversion price (which
is $16.50 per unit) (subject to certain anti-dilution provisions). Each Series C
Convertible Preferred Unit of limited partnership interest in the Operating
Partnership may be converted by the holder into (a) at the election of the
holder, (1) the number of our Common Shares obtained by dividing the liquidation
preference (which is $25.00 per unit) by the conversion price (which is $16.00
per unit) or (2) the number of shares of our Series B Convertible Preferred
Stock identical to the number of Series C Preferred OP Units being converted (in
each case subject to certain anti-dilution provisions); or if the Operating
Partnership elects to give cash instead of our Common Shares or Series B
Convertible Preferred Stock, (b) the amount of cash obtained by multiplying the
current market price per share of our Common Shares by a fraction, the numerator
of which is the liquidation preference and the denominator of which is the
conversion price. Each Series D Convertible Preferred Unit of limited
partnership interest in the Operating Partnership may be converted by the holder
into (a) at the election of the holder, the number of our Common Shares or OP
Units obtained by dividing the liquidation preference (which is $25.00 per unit)
by the conversion price (which is $16.00 per unit) (in each case subject to
certain anti-dilution provisions); or if the Operating Partnership elects to
give cash instead of our Common Shares or OP Units, (b) the amount of cash
obtained by multiplying the current market price per share of our Common Shares
by a fraction, the numerator of which is the liquidation preference and the
denominator of which is the conversion price. With each such exchange, our
percentage interest in the Operating Partnership will increase.
Our Common Shares are listed on the AMEX under the symbol "KTR."
Our principal executive offices are located at 200 Four Falls Corporate
Center, Suite 208, West Conshohocken, PA 19428 and our telephone number is (484)
530-1800. We also maintain offices in Franklin Lakes, New Jersey, New York and
Syracuse, New York, Allentown, Pennsylvania and Greenville, South Carolina.
Unless the context otherwise requires, all references to "we," "us" or "our
company" refers to Keystone Property Trust and its subsidiaries, including the
Operating Partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of Common Shares by the
selling security holders.
SELLING SECURITY HOLDERS
Sales of our Common Shares registered hereby must (i) be accompanied by a
copy of this Prospectus, together with the applicable prospectus supplement or
(ii) be effected through an exemption from registration, such as pursuant to
Rule 144 under the Securities Act.
The following table lists (i) the selling security holders s who may offer
our Common Shares from time to time pursuant to this Prospectus, (ii) the number
and percentage of Common Shares owned by each selling security holders , (iii)
the number of Common Shares of each selling security holders , the offer and
sale of which is to be registered on behalf of each selling security holders
pursuant to this Prospectus (the "Registered Shares") and (iv) the amount of
Common Shares that, to the knowledge of the Company, will be held by selling
security holders after completion of this offering. We are registering the
Registered Shares in order to permit secondary trading of the Registered Shares,
and the selling security holders may offer Registered Shares for resale from
time to time. See the section "Method of Sale" in this Prospectus.
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<TABLE>
<CAPTION>
Shares Beneficially
Shares Beneficially Owned After
Owned Before Offering(1) Registered Offering (2)
------------------------- ---------- ---------------------
Name Number Percentage Shares Number Percentage
- -------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
AEW Targeted Fund, L.P............1,216,000(2) 13.38%(2) 1,216,000 0 0
Hopewell Properties, Inc.......... 456,000(2) 5.02%(2) 456,000 0 0
</TABLE>
- -----------
(1) The Registered Shares may be offered from time to time in one or more
offerings. This assumes that all of the Common Shares being offered under
this Prospectus are sold, and that the selling security holders acquire no
additional Common Shares before the completion of this offering.
(2) This assumes that all of the Series A Preferred Stock and Preferred OP Units
held by the selling security holders are converted into Common Shares on a
1:1.52 basis as of March 10, 1999.
* Less than 1%
AEW Targeted Securities Fund, L.P. purchased its shares of Series A
Preferred Stock from the Company in December 1998. Each share of Series A
Preferred Stock is convertible into approximately 1.52 of our Common Shares,
subject to certain anti-dilution provisions set forth in the Articles
Supplementary relating to the Series A Preferred Stock. Pursuant to a
Registration Rights Agreement, dated as of December 23, 1998, we agreed to
register the Common Shares issuable upon conversion of the Series A Preferred
Stock within 60 days of the date of such agreement. In addition, the terms of
the Series A Preferred Stock provide that, if we propose to issue Common
Shares, or securities convertible into our Common Shares, for cash, each
holder of shares of Series A Preferred Stock will have the right to purchase,
on the same terms, up to an amount of the securities such that, upon
consummation of the proposed issuance, such holder would hold the same
percentage of the Common Shares as it held immediately prior to such issuance.
Hopewell Properties, Inc. received its Preferred OP Units as part of the
consideration paid by us to purchase 26 industrial properties in South Carolina
pursuant to an Asset Purchase Agreement, dated as of August 7, 1998. Each
Preferred OP Unit is convertible into approximately 1.52 of our Common Shares,
subject to anti-dilution provisions set forth in the Operating Partnership's
Partnership Agreement. Pursuant to a Preferred Unit Recipient Agreement, dated
as of December 23, 1998, we agreed to register the Common Shares issuable upon
conversion of the Preferred OP Units within 90 days of the date of such
agreement.
We have agreed to indemnify the selling security holders against certain
liabilities. See "Method of Sale" below.
METHOD OF SALE
This Prospectus relates to the possible offer and sale from time to time by
the selling security holders (or by pledgees, donees, transferees or other
successors in interest of such selling security holders ) of their Registered
Shares. We have registered the Registered Shares for resale to provide them with
freely tradeable securities. However, registration of the Registered Shares does
not necessarily mean that they will offer or sell any of their Registered
Shares. We will not receive any proceeds from the offering or sale of their
Registered Shares.
The selling security holders (or pledgees, donees, transferees or other
successors in interest) in one or more transactions (which may involve block
crosses or transactions) may sell the Registered Shares to which this Prospectus
relates from time to time (i) on the AMEX, where our Common Shares are listed
for trading, (ii) in other markets where our Common Shares are traded, (iii) in
negotiated transactions, (iv) through short sales or put and call option
transactions through underwriters, brokers or dealers (who may act as agent or
principal), (v) through the distribution of the Registered Shares by any selling
security holder to its partners, members or shareholders, (vi) directly to one
or more purchasers, (vii) through agents or (viii) in a combination of such
methods of sale. They may sell the Registered Shares at prices which are current
when the sales take place or at other prices to which they agree.
Any underwriters, brokers, dealers or agents may receive compensation in
the form of discounts, concessions or commissions from the selling security
holders or such other persons who may be effecting sales hereunder (which
discounts, concessions or commissions as to particular underwriters, brokers,
dealers or agents may be in excess of those customary in the types of
transactions involved). Underwriters may sell Registered Shares to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the
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underwriters and/or commissions from the purchasers for whom they may act as
agents. The selling security holders or other persons effecting sales hereunder,
and any such underwriters, brokers, dealers and agents may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts or
commissions they receive and any profit on the sale of the Registered Shares
they realize may be deemed to be underwriting discounts and commissions under
the Securities Act. Some sales may involve shares in which the selling security
holders have granted security interests and which are being sold because of
foreclosure of those security interests. We have agreed to indemnify each
selling security holder against certain liabilities, including liabilities
arising under the Securities Act. The selling security holders or other persons
effecting sales hereunder may agree to indemnify any such underwriters, dealers
and agents against certain liabilities, including liabilities under the
Securities Act.
The selling security holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our Common Shares in the course of hedging the positions they assume
with selling security holders. The selling security holders may also enter into
options or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of our Common Shares offered hereby, which Common Shares such
broker-dealer or other financial institution may resell pursuant to this
Prospectus (as supplemented or amended to reflect such transaction).
Under the securities laws of certain states, the Registered Shares may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Registered Shares may not be sold unless the
Registered Shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The selling security holders also may resell all or a portion of their
Registered Shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such rule.
Upon notification by a selling security holder that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this Prospectus, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of each such selling security holder and of the
participating broker-dealer(s), (ii) the number of Registered Shares involved,
(iii) the price at which such Registered Shares were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus
and (vi) other facts material to the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Shares, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. shareholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. shareholder
in light of his or her particular circumstances or to certain types of
shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance can be given that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or sustained by the courts if so challenged.
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THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
WE ADVISE EACH PROSPECTIVE PURCHASER OF COMMON SHARES TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized and operated in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we have operated in a
manner so as to qualify as a REIT or will continue to operate in a manner so as
to remain qualified as a REIT. Qualification and taxation as a REIT depends upon
our ability to meet, on a continuing basis, through periodic operating results,
distribution levels, diversity of share ownership and other qualification tests
imposed under the Code on REITs, some of which are summarized below. While we
intend to operate so as to qualify as a REIT, given the highly complex nature of
the rules governing REITs, the ongoing importance of factual determinations and
the possibility of future changes in our circumstances, no assurance can be
given that we will so qualify for any particular year. See the section "Failure
to Qualify" in this Prospectus.
In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ended December 31, 1993, we have been organized and
operated in conformity with the requirements for qualification as a REIT under
the Code and our proposed method of operation and that of the Operating
Partnership will enable us to continue to meet the requirements for
qualification as a REIT. Counsel's opinion is based on various assumptions and
is conditioned upon certain of our representations and the representations of
the Operating Partnership as to factual matters. In addition, Counsel's opinion
is based upon our factual representations concerning our business and
properties, and the business and properties of the Operating Partnership. Unlike
a tax ruling, an opinion of counsel is not binding upon the IRS and no assurance
can be given that the IRS will not challenge our status. Moreover, such
qualification and taxation as a REIT depends upon our ability to meet, through
actual annual operating results, distribution levels, diversity of stock
ownership and various other qualification tests imposed under the Code. Counsel
will not review our compliance with the various REIT qualification tests on a
periodic or continuing basis. Accordingly, no assurance can be given that the
actual results of our operation for any one taxable year will satisfy such
requirements. See the section "Failure to Qualify" in this Prospectus.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that we distribute
currently to our shareholders. This treatment substantially eliminates the
"double taxation" (taxation at both the entity and shareholder levels) that
generally results from an investment in an entity taxable as a corporation. If
we do not qualify as a REIT, we would be taxed at rates applicable to
corporations on all of our income, whether or not distributed to our
shareholders. Even if we qualify as a REIT, we will be subject to federal income
or excise tax as follows: (i) we will be taxed at regular corporate rates on any
undistributed REIT taxable income and undistributed net capital gains other than
retained capital gains as discussed below; (ii) under certain circumstances, we
may be subject to the "alternative minimum tax" on our items of tax preference,
if any; (iii) if we have (1) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a foreclosure
or otherwise on default of a loan secured by the property) that is held
primarily for sale to customers in the ordinary course of business or (2) other
non-qualifying net income from foreclosure property, we will be subject to tax
at the highest corporate rate on such income; (iv) if we have net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than dispositions of foreclosure property and
dispositions of property that occur due to involuntary conversion) held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax; (v) if we should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and nonetheless
maintain our
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qualification as a REIT because certain other requirements are met, we will be
subject to a 100% tax on the net income attributable to the greater of the
amount by which we fail the 75% or 95% test, multiplied by a fraction intended
to reflect our profitability; (vi) if we should fail to distribute with respect
to each calendar year at least the sum of (1) 85% of our REIT ordinary income
for such year, (2) 95% of our REIT capital gain net income for such year, and
(3) any undistributed taxable income from prior years, we would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed; (vii) if we acquire any asset from a C corporation (I.E.,
generally a corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in our hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation and
we subsequently recognize gain on the disposition of such asset in a taxable
transaction during the 10-year period (the "Recognition Period") beginning on
the date on which we acquired the asset (or we first qualified as a REIT), then
pursuant to guidelines issued by the IRS, the excess of (1) the fair market
value of the asset as of the beginning of the applicable Recognition Period,
over (2) our adjusted basis in such asset as of the beginning of such
Recognition Period will be subject to tax at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar year as its taxable
year; (vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(viii) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT.
We believe that we currently satisfy all of the conditions listed in the
preceding paragraph. In addition, our Declaration of Trust includes restrictions
regarding the transfer of our Common Shares that are intended to assist us in
continuing to satisfy the share ownership requirements described in (vi) and
(vii) above. In rendering its opinion that we are organized in conformity with
the requirements for qualification as a REIT, Counsel is relying on our
representation that ownership of our stock satisfies condition (vii) and Counsel
expresses no opinion as to whether the ownership restrictions contained in the
Declaration of Trust preclude us from failing to satisfy condition (vii) above.
In addition, we intend to continue to comply with the Treasury Regulations
requiring us to ascertain and maintain records which disclose the actual
ownership of our shares. Although a failure to ascertain the actual ownership of
our shares will not cause our disqualification as a REIT beginning with our
taxable year ending December 31, 1998, a monetary fine may result.
We currently have several "qualified REIT subsidiaries." A corporation that
is a qualified REIT subsidiary is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as assets,
liabilities and items of the REIT. In applying the requirements described
herein, our qualified REIT subsidiaries will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries will
be treated as our assets, liabilities and items of income, deduction and credit.
Any qualified REIT subsidiary of ours will therefore not be subject to federal
corporate income taxation, although such qualified REIT subsidiary may be
subject to state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Accordingly, our
proportionate share of the assets, liabilities and items of income of the
Operating Partnership are treated as assets, liabilities and items of income of
ours for purposes of applying the requirements described herein, provided that
the Operating Partnership is treated as a partnership for federal income tax
purposes. See the section "Other Tax Considerations-Effect of Tax Status of the
Operating Partnership on REIT Qualification" in this Prospectus.
INCOME TESTS. In order to qualify as a REIT, a company must generally
satisfy two gross income requirements on an annual basis. First, at least 75% of
its gross income (excluding gross income from prohibited transactions) for
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each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of its gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
the same items which qualify under the 75% gross income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. In addition, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of its gross income
(including gross income from prohibited transactions) for each taxable year
beginning on or prior to August 5, 1997. The Taxpayer Relief Act of 1997 (the
"Taxpayer Relief Act") repealed the 30% gross income test for taxable years
beginning after its enactment on August 5, 1997. Accordingly, the 30% gross
income test no longer applies beginning with our taxable year ending December
31, 1998.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of gross
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the REIT derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Taxpayer Relief Act provides a DE MINIMIS rule
for non-customary services beginning with our taxable year ending December 31,
1998. Specifically, if the value of the non-customary service income with
respect to a property (valued at no less than 150% of the direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
qualify as "rents from real property."
We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of gross receipts or sales consistent with the rules
described above). We do not anticipate receiving more than a DE MINIMIS amount
of rents from any Related Party Tenant or rents attributable to personal
property leased in connection with real property that will exceed 15% of the
total rents received with respect to such property.
We will provide certain services with respect to our Properties through the
Operating Partnership, which is not an "independent contractor." However, we
believe (and have represented to Counsel) that all of such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only so that the provision of such services will not
jeopardize the qualification of rent from the Properties as "rents from real
property." In rendering its opinion on our ability to qualify as a REIT, Counsel
is relying on such representations. In the case of any services that are not
"usual and customary" under the foregoing rules, we will employ an "independent
contractor" to provide such services.
The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income tests. In particular, dividends
received from the Management Company will not qualify under the 75% test. We
believe, and have represented to Counsel, however, that the aggregate amount of
such items and other non-qualifying income in any taxable year will not cause us
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return
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and any incorrect information on the schedule was not due to fraud with the
intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these relief provisions. As
discussed above, even if these relief provisions were to apply, a tax would be
imposed on certain excess net income.
ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of such
proceeds), cash, cash items and government securities; (ii) not more than 25% of
its total assets may be represented by securities other than those in the 75%
asset class; and (iii) of the investments included in the 25% asset class, the
value of any one issuer's securities (other than an interest in a partnership or
a "qualified REIT subsidiary" or another REIT) owned by a REIT may not exceed 5%
of the value of its total assets, and it may not own more than 10% of any one
issuer's outstanding voting securities (other than an interest in a partnership
or securities of a "qualified REIT subsidiary" or another REIT).
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If a failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including, for example, as a result of increasing our
interest in the Operating Partnership as a result of a merger, the exercise of
redemption rights or an additional capital contribution of proceeds of an
offering of capital shares), such failure may be cured by a disposition of
sufficient non-qualifying assets within 30 days following the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and plan to take such other action within
30 days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is generally required to distribute to its shareholders at least 95% of its
taxable income each year. In addition, it will be subject to regular capital
gains and ordinary corporate tax rates on undistributed income, and also may be
subject to a 4% excise tax on undistributed income in certain events. We believe
that we have made, and intend to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements. However, it is
possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet the distribution requirements. In such circumstances, we
may cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a taxable year by paying "deficiency dividends"
to shareholders in a later year that may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we would be required to
pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to shareholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to our shareholders will be taxable as ordinary
income and, subject to certain limitations in the Code, corporate distributees
may be eligible for the "dividends received deduction." In addition, our failure
to qualify as a REIT would also substantially reduce the cash available for
distributions to shareholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate shareholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will
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be taxed as gains from the sale or exchange of a capital asset (to the extent
they do not exceed our actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its shares. If we
designate any portion of a dividend as a capital gain dividend, a shareholder's
share of such capital gain dividend would be an amount which bears the same
ratio to the total amount of dividends paid to such shareholder for the taxable
year as the total amount of capital gain dividends bears to the total amount of
all dividends paid on all classes of shares for the taxable year. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. We may elect to retain and pay income tax on
any net long-term capital gain, in which case our domestic shareholders would
include in their income as long-term capital gain their proportionate share of
such undistributed net long-term capital gain. A domestic shareholder would also
receive a refundable tax credit for such shareholder's proportionate share of
the tax paid by us on such retained capital gains and an increase in its basis
in our shares in an amount equal to the difference between the undistributed
long-term capital gains and the amount of tax paid by us. See "Capital Gains and
Losses" below.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such Common Shares. To the extent that such distributions
exceed the adjusted basis of a shareholder's Common Shares, they will be
included in income as short-term or long-term capital gain (depending on the
length of time the shares have been held), assuming the Common Shares are a
capital asset in the hands of the shareholder. In addition, any dividend
declared by us in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by us and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by us during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any of our net operating losses or capital losses.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such Common Shares. Such gain or loss
generally will constitute short-term capital gain or loss if the shareholder has
not held such shares for more than one year and long-term capital gain or loss
if the shareholder has held such shares for more than one year. See "Capital
Gains and Losses" below. Loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from us required to be treated by such
shareholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual federal income
tax rate is 39.6%. The maximum tax rate on net capital gains applicable to
individuals, trusts and estates from the sale or exchange of capital assets held
for more than one year is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation (other than certain
depreciation recapture taxable as ordinary income) with respect to such
property. Accordingly, the tax rate differential between capital gain and
ordinary income for non-corporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the deductibility
of capital losses. Capital losses not offset by capital gains may be deducted
against a non-corporate taxpayer's ordinary income only up to a maximum annual
amount of $3,000. Unused capital losses may be carried forward. All net capital
gain of a corporate taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.
IRS Notice 97-64 provides temporary guidance with respect to the taxation
of distributions by REITs that are designated as capital gain dividends.
Pursuant to Notice 97-64, forthcoming Treasury Regulations will provide that
capital gains allocated to a shareholder by us may be designated as a 20% rate
gain distribution, a 25% rate gain distribution, or a 28% rate gain
distribution. In determining the amounts which may be designated as each class
of capital gains dividends, a REIT must calculate its net capital gains as if it
were an individual subject to a marginal tax rate on ordinary income of 28%.
Unless specifically designated otherwise by us, a distribution designated as a
capital gain distribution is presumed to be a 28% rate gain distribution. If we
elect to retain any net long-term capital
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gain, as discussed above, the undistributed long-term capital gains are
considered to be designated as capital gain dividends for purposes of Notice
97-64. Furthermore, Notice 97-64 provides that designations of capital gain
dividends made by us will only be effective to the extent that the distributions
with respect to our different classes of shares are composed proportionately of
ordinary and capital gain dividends. However, Notice 97-64 was issued prior to
the IRS Restructuring and Reform Act of 1998 (the "1998 Reform Act") which
significantly changed the taxation of capital gains of certain non-corporate
taxpayers. We expect the IRS to issue clarifying guidance regarding the impact
of Notice 97-64 in light of the 1998 Reform Act.
BACKUP WITHHOLDING. We will report to our domestic shareholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. The United States Treasury has
issued final regulations on October 6, 1997 (the "Final Regulations") regarding
the withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Shares.
In addition, we may be required to withhold a portion of capital gain
dividends made to any shareholders which fail to certify their non-foreign
status to us. See "Taxation of Foreign Shareholders" below.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. Distributions that we make to a
shareholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of Common Shares with "acquisition indebtedness" within the
meaning of the Code and the Common Shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, under certain
circumstances, qualified trusts that own more than 10% (by value) of our shares
may be required to treat a certain percentage of dividends as UBTI. This
requirement will only apply if we are a "pension-held REIT." The restrictions on
ownership in our Declaration of Trust should prevent us from being classified as
a pension-held REIT.
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Shares by
persons that are, for purposes of such taxation, nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex and no attempt will be made
herein to provide more than a very limited summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN SHARES, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX
TREATMENT OF SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
Distributions that are not attributable to gain from sales or exchanges of
U.S. real property interests and not designated by us as capital gain dividends
will be treated as dividends and taxed as ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
distributions are, generally, subject to a withholding tax equal to 30% of the
gross amount of the distribution, unless an applicable tax treaty reduces that
tax. Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Shareholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition of
his Common Shares as described below (in which case they also may be subject to
a 30% branch profits tax if the shareholder is a foreign corporation).
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For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder. Under the
Final Regulations, generally effective for distributions after December 31,
2000, we would not be required to withhold at the 30% rate on distributions we
reasonably estimate to be in excess of our current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to ordinary dividends. However, a Non-U.S. Shareholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current or accumulated earnings and profits, and
the amount withheld exceeded the Non-U.S. Shareholder's United States tax
liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") at the normal capital
gain rates applicable to U.S. shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a corporate Non-U.S. Shareholder not
entitled to treaty relief or exemption. We are required by the Code to withhold
35% of any distribution that could be designated by us as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Shares will
generally not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which, at all times during a specified testing
period, less than 50% in value of the shares was held directly or indirectly by
foreign persons. We believe that we are a "domestically controlled REIT" and,
therefore, the sale of Common Shares will not be subject to taxation under
FIRPTA. However, because the Common Shares are publicly traded, no assurance can
be given that we will continue to qualify as a "domestically controlled REIT."
If the gain on the sale of Common Shares were to be subject to tax under FIRPTA,
the Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of the Common
Shares would be required to withhold and remit to the IRS 10% of the purchase
price. In addition, if we are not a "domestically controlled REIT,"
distributions in excess of our current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT QUALIFICATION.
All of our investments are through the Operating Partnership. We believe that
the Operating Partnership is properly treated as a partnership for tax purposes
(and not as an association taxable as a corporation). If, however, the Operating
Partnership were to be treated as an association taxable as a corporation, we
would cease to qualify as a REIT. Furthermore, in such a situation, the
Operating Partnership would be subject to corporate income taxes and we would
not be able to deduct our share of any losses generated by the Operating
Partnership in computing our taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed Properties. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of the
Operating Partnership could cause us to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to us
if all Properties were to have a tax basis equal to their fair market value at
the time of acquisition. The foregoing principles also
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apply in determining our earnings and profits for purposes of determining the
portion of distributions taxable as dividend income. The application of these
rules over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had we purchased our interests in the
Properties at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The Operating Partnership has determined
to use the "traditional method"(which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
contributed Properties.
STATE AND LOCAL TAXES. We and our shareholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax treatment of us
and our shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in our Common Shares.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS. During 1999, the Clinton
Administration released a summary of its proposed budget plan and various
legislation was introduced in Congress which contained several proposals
affecting REITs. One such proposal, if enacted in its present form, would
prohibit a REIT from holding securities representing more than 10% of the value
of all classes of stock of a corporation, other than a qualified REIT subsidiary
or another REIT. However, REITs would be allowed to hold two types of "taxable
REIT subsidiaries" which would be subject to full corporate level taxation.
Under the proposal, we would be allowed to combine or convert our existing stock
interest in the Management Company into a "taxable REIT subsidiary," subject to
certain transition rules. If enacted in its present form, the proposal may limit
the future activities and growth of the Management Company. No prediction can be
made as to whether such proposal or any other proposal affecting REITs will be
enacted into legislation and the impact of any such legislation on our
operations.
LEGAL MATTERS
Piper & Marbury L.L.P., Baltimore, Maryland has passed upon the validity of
the Common Shares offered by this Prospectus. Rogers & Wells LLP, New York, New
York has passed upon certain legal matters described under "Federal Income Tax
Considerations."
EXPERTS
The consolidated financial statements and the related financial
statement schedule of Keystone Property Trust (formerly American Real Estate
Investment Corporation) and subsidiaries incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their reports and
are incorporated by reference herein and have been so incorporated in
reliance upon the authority of said firm as experts in giving said reports.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission........... 5,959.00
Accounting fees and expenses................................... 5,000.00(a)
Legal fees and expenses........................................ 25,000.00(a)
Printing and engraving expenses................................ 5,000.00(a)
Miscellaneous.................................................. 15,000.00(a)
Total..................................................... 55,959.00
</TABLE>
- ------------------------
(a) Does not include expenses of preparing prospectus supplements and other
relating to offerings of particular securities.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
As permitted by Title 8 of the Corporations and Associations Articles of
the Annotated Code of Maryland ("Title 8"), our Declaration of Trust provides
that we shall indemnify (i) our trustees and officers to the fullest extent
required or permitted by Maryland law, including the advance of expenses under
the procedures and to the full extent permitted by law and (ii) other employees
and agents to such extent as shall be authorized by our Board of Trustees or our
Bylaws and be permitted by law. Title 8 requires a real estate investment trust
(a "Trust") to indemnify its present and former trustees and officers, among
others, against expenses incurred by them in connection with a proceedings where
the trustee or officer has been successful, on the merits or otherwise, in the
defense of any such proceedings. In addition, Title 8 permits a Trust to
indemnify its present and former trustees and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities, unless it is
established that (a) the act or omission of the trustee or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith,
or (ii) was the result of active and deliberate dishonesty, (b) the trustee or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the trustee or officer
had reasonable cause to believe that the act or omission was unlawful.
As permitted by Title 8, our Declaration of Trust provides that no trustee,
officer, employee or agent shall be personally liable to the Trust or its
shareholders to the fullest extent permitted by Maryland law. Title 8 permits a
Trust to limit the liability of its trustees and officers to the Trust and its
shareholders for money damages, except to the extent that (1) it is provided
that the person actually received an improper benefit or profit in money,
property or services or (2) a judgment or other final adjudication is entered in
a proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
We have a trustee and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $75,000 in the aggregate for each
claim.
ITEM 16. EXHIBITS
2.1 Articles of Merger (incorporated by reference to Exhibit 2.1 of our
Form 8-K, filed with the Commission on October 13, 1999
(File 1-12514)).
2.2 Agreement and Plan of Merger (incorporated by reference to
Exhibit 2.2 of our Registration Statement on Form S-3, filed
with the Commission on October 15, 1999 (File 333-89095)).
3.1 Declaration of Trust of the Registrant (incorporated by reference to
Exhibit 3.1 of our Registration Statement on Form S-3, filed with the
Commission on October 15, 1999 (File 333-89095)).
23
<PAGE>
3.2 Articles Supplementary of the Registrant relating to our Series A
Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 of
our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.3 Articles Supplementary of the Registrant relating to the Series B
Convertible Preferred Stock (incorporated by reference to Exhibit 3.3 of
our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.4 Articles Supplementary of the Registrant relating to our Series C
Convertible Preferred Stock (incorporated by reference to Exhibit 3.4 of
our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.5 By-Laws of the Registrant (incorporated by reference to Exhibit 3.5 of
our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.6 Specimen of Share Certificate (incorporated by reference to
our Registration Statement on Form S-3, filed with the
Commission on October 15, 1999 (File 333-89095)).
5.1 Opinion of Rogers & Wells LLP (incorporated by reference to Exhibit 5.1
of our Registration Statement on Form S-3 filed on March 11, 1999 (File
333-74277)).
5.2 Opinion of Piper & Marbury L.L.P. (incorporated by reference to Exhibit
5.2 of our Registration Statement on Form S-3 filed on March 11, 1999
(File 333-74277)).
8.1 Opinion of Rogers & Wells LLP regarding tax matters (incorporated by
reference to Exhibit 8.1 of our Registration Statement on Form S-3 filed
on March 11, 1999 (File 333-74277)).
23.1 Consent of Rogers & Wells LLP (included in Exhibit 5.1).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (on signature pages hereto).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i). To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii).To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii).To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in the Registration
Statement;
PROVIDED, HOWEVER, that the undertakings set forth in paragraphs (i) and (ii)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
24
<PAGE>
4. That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement will be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time will be deemed to be the initial
bona fide offering thereof.
5. That, (i) for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (ii)
for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel for the
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on November 12, 1999.
KEYSTONE PROPERTY TRUST
By: /s/ JEFFREY E. KELTER
-------------------------
Jeffrey E. Kelter
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey E. Kelter, Timothy A. Peterson and
Timothy E. McKenna, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including any post-effective amendments, to this Registration
Statement on Form S-3 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and any and all applications and other documents in
connection therewith, with the Securities and Exchange Commission and any state
or other securities authority, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or agents, or any of them, or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ DAVID F. MCBRIDE
- -----------------------
David F. McBride Chairman And Trustee November 12, 1999
/s/ JEFFREY E. KELTER
- -----------------------
Jeffrey E. Kelter President and Chief Executive November 12, 1999
Officer And Trustee
(Principal Executive Officer)
/s/ TIMOTHY E. PETERSON
- -----------------------
Timothy E. Peterson Chief Financial Officer November 12, 1999
And Secretary
(Principal Financial Officer)
/s/ TIMOTHY E. MCKENNA
- -----------------------
Timothy E. McKenna Senior Vice President, Finance November 12, 1999
and Treasurer
(Principal Accounting Officer)
26
<PAGE>
Name Title Date
---- ----- ----
/s/ RUSSELL PLATT
- -----------------------
Russell Platt Trustee November 12, 1999
/s/ FRANCESCO GALESI
- -----------------------
Francesco Galesi Trustee November 12, 1999
/s/ MICHAEL FALCONE
- -----------------------
Michael Falcone Trustee November 12, 1999
/s/ DAVID LESSER
- -----------------------
David Lesser Trustee November 12, 1999
/s/ JAMES MULVIHILL
- -----------------------
James Mulvihill Trustee November 12, 1999
/s/ SCOTT RECHLER
- -----------------------
Scott Rechler Trustee November 12, 1999
/s/ JOSEPH D. MORRIS
- -----------------------
Joseph D. Morris Trustee November 12, 1999
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page
- -------- ----
<S> <C> <C>
2.1 Articles of Merger (incorporated by reference to Exhibit 2.1 of our
Form 8-K, filed with the Commission on October 13, 1999 (File
1-12514)).
2.2 Agreement and Plan of Merger (incorporated by reference to Exhibit 2.2
of our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.1 Declaration of Trust of the Registrant (incorporated by reference to
Exhibit 3.1 of our Registration Statement on Form S-3, filed with the
Commission on October 15, 1999 (File 333-89095)).
3.2 Articles Supplementary of the Registrant relating to our Series A
Convertible Preferred Stock (incorporated by reference to Exhibit 3.2
of our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.3 Articles Supplementary of the Registrant relating to the Series B
Convertible Preferred Stock (incorporated by reference to Exhibit 3.3
of our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.4 Articles Supplementary of the Registrant relating to our Series C
Convertible Preferred Stock (incorporated by reference to Exhibit 3.4
of our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.5 By-Laws of the Registrant (incorporated by reference to Exhibit 3.5 of
our Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
3.6 Specimen of Share Certificate (incorporated by reference to our
Registration Statement on Form S-3, filed with the Commission on
October 15, 1999 (File 333-89095)).
5.1 Opinion of Rogers & Wells LLP (incorporated by reference to Exhibit 5.1
of our Registration Statement on Form S-3 filed on March 11, 1999 (File
333-74277)).
5.2 Opinion of Piper & Marbury L.L.P. (incorporated by reference to Exhibit
5.2 of our Registration Statement on Form S-3 filed on March 11, 1999
(File 333-74277)).
8.1 Opinion of Rogers & Wells LLP regarding tax matters (incorporated by
reference to Exhibit 8.1 of our Registration Statement on Form S-3
filed on March 11, 1999 (File 333-74277)).
23.1 Consent of Rogers & Wells LLP (included in Exhibit 5.1).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (on signature pages hereto).
</TABLE>
28
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference into this Registration Statement on Form S-3 (the ""Registration
Statement'') of Keystone Property Trust (the ""Company'') of: our report dated
February 18, 1999, on the consolidated financial statements of the Company,
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998; our report dated February 13, 1998 on the statement of
revenue and certain expenses of 101 Commerce Drive for the year ended
December 31, 1996, included in the Company's Form 8-K/A dated February 24,
1998; our report dated April 1, 1998 on the statement of revenue and certain
expenses of GATX Properties for the year ended December 31, 1997 and our
report dated June 5, 1998 on the statement of revenue and certain expenses of
Double M Development Properties for the year ended December 31, 1997, both
included in the Company's Form 8-K/A dated June 10, 1998; our report dated
April 1, 1998 on the combined statement of revenue and certain expenses of
Galesi Properties for the year ended December 31, 1997 and our report dated
June 15, 1998 on the statement of revenue and certain expenses of Fed One
Portfolio for the year ended December 31, 1997, both included in the
Company's Form 8-K/A dated July 14, 1998; our report dated July 6, 1998 on
the combined statement of revenue and certain expenses of Pioneer Portfolio
for the year ended December 31, 1997, our report dated July 7, 1998 on the
statement of revenue and certain expenses of ASW Portfolio for the year ended
December 31, 1997 and our report dated July 31, 1998 on the combined
statement of revenue and certain expenses of Szeles Portfolio for the year
ended December 31, 1997, all included in the Company's 8-K dated August 13,
1998; our report dated December 5, 1998 on the combined statement of revenue
and certain expenses of Chambersburg Properties for the year ended December 31,
1997, our report dated December 16, 1998 on the combined statement of
revenue and certain expenses of Browning Investment Portfolio for the year
ended December 31, 1997 and our report dated December 23, 1998 on the
combined statement of revenue and certain expenses of Brashier Portfolio for
the year ended December 31, 1997, all included in the Company's 8-K/A dated
January 13, 1999; our report dated August 13, 1999 on the combined statement
of revenue and certain expenses of Reckson Morris Industrial Portfolio for
the year ended December 31, 1998, our report dated October 11, 1999 on the
combined statement of revenue and certain expenses of Poly-Foam Properties
for the year ended December 31, 1998 and our report dated October 11, 1999 on
the statement of revenue and certain expenses of BMG Property for the year
ended December 31, 1998, all included in the Company's 8-K dated October 12,
1999; and our report dated October 15, 1999 on the statement of revenue and
certain expenses of Lemoyne Property for the year ended December 31, 1998
included in the Company's 8-K dated October 20, 1999 and to all references to
our Firm included in the Registration Statement.
Philadelphia, Pennsylvania
November 12, 1999
